Rectification Ordered Even Where Party Failed To Read Document Properly

Daventry District Council –v- Daventry & District Housing Limited [2011] EWCA Civ 1153

This case involved a transfer (or outsourcing) of council housing by Daventry District Council to DDH, a new company set up as a charity to take it over. The purchase was being funded by RBS. The matter at issue concerned the pension fund deficit attributable to transferring employees and in particular who was to fund that deficit. There were negotiations between Mr Bruno for the Council and Mr Roebuck for DDH. These culminated in a document produced by Mr Bruno known as "Version 1" . The "better" interpretation of this document was that the Council was proposing a reduction of the purchase price equal to the pension fund deficit of £2.4 million, but that DDH would transfer the equivalent amount from a VAT relief fund which would otherwise have been shared, i.e. the net effect was that the parties would pay half the deficit each. Mr Roebuck knew that this was the interpretation of Version 1 intended by Mr Bruno, but he presented it to the DDH board and its solicitors and financial advisers as saying that the Council would be paying the deficit. The contract documentation was prepared on the basis of Mr Roebuck's interpretation and negotiated between the parties without changes to the relevant sub-clause. Later on, at RBS' request, a further sub-clause was inserted to confirm the position. This clause was specifically negotiated and agreed between the parties. At many of the negotiations, Mr Bruno was present but said nothing on the point. In due course the Council sought to rectify the agreement to make it clear that it was not responsible for funding the deficit.

The Court of Appeal ordered rectification. All three judges gave full judgments with Toulson LJ being firmly in favour of rectification, the Master of Rolls ordering rectification with some hesitation and Etherton LJ refusing rectification. The judges shared their judgments with each other as they were written. Etherton LJ in particular made some trenchant criticism of the positions taken by the other two.

The judges broadly speaking agreed on the law of rectification for common mistake but disagreed on the relative importance of (i) Mr Roebuck's misleading the DDH board as to the Council's understanding of the effect of version 1 and, on the other hand, (ii) the Council's repeated refusal to appreciate what was clearly set out in the document (arising from, as the Master of the Rolls put it...

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